Balancing quality and price

Wed, 2013-05-22 10:25

It’s a battle any trucker, but mostly likely those on the smaller side of the scale, is intimately familiar with: how to delicately balance good quality service with a rate that bolsters a healthy bottom line yet that doesn’t dip too deeply into a customer’s wallet.

Indeed, that’s a challenge being faced in the broader U.S. business community as well according to a new report dubbed A Valuable Turn for Finance compiled by the American Express Co.and CFO Research, an arm of CFO Publishing LLC.

“After surviving a turbulent financial downturn and struggling to find growth opportunities in the aftermath, U.S. companies today are focused on building a new value-focused framework – one that balances quality and price,” noted Darryl Brown (at right), president of the Americas for global corporate payments at American Express.

“Finding balance between these two is essential for midsize companies, which now face increasing competitive pressures from larger peers,” he added.

“There is now a heightened need for midsize companies to find new ways to compete with larger competitors whose size provides pricing advantages,” Brown emphasized. “Customers demand competitive prices and sustained quality. This forces companies to extract greater value from suppliers, vendors and their own organizations through tight fiscal controls in order to drive growth.”

American Express’ report, which surveyed 275 senior finance executives at U.S. companies with annual revenue between $4 million and $2 billion (with the majority falling within the midsize category of $50 million and $1 billion) that 57% of them identify their strongest competitors as larger peers.

Compared to midsize companies, these large competitors are able to deliver significant volumes of goods and services with thinner margins, stressed Brown – a situation quite familiar to smaller-sized truckers, especially when competing against the likes of larger brethren such as Werner Enterprises.

In order to compete on value and price, financial executives polled by American Express said not only are they tasked with getting the most out of suppliers, vendors and their own organizations, but to do so largely with cash generated through operations.

The company's survey findings reveal most respondents (81%) agree that cash from ongoing operations – rather than debt or equity financing – is likely to be a primary source of growth capital over the next two years.

Yet given their often limited control over payment terms with larger suppliers, vendors and customers, financial executives said midsize companies must look for every opportunity to extract greater value from their supply chain.

American Express’ poll also found that some finance executives are adopting vendor-management tactics common among larger firms as they look for opportunities to reduce spending through lower-cost suppliers and vendors. As companies push supply networks to offer more value per dollar, financial executives surveyed are enforcing strict management internally too.

Most respondents (82%) say their companies are likely to increase their focus on maintaining “financial discipline” over the next year.

Outside of additional cutbacks, though, respondents to American Express’ survey pointed out that improving payments efficiencies and addressing challenges in forecasting and compliance will be critical to achieving an ongoing, value-focused discipline.

This new “value-driven” mindset is not without challenges, though, as 43% of respondents report lack of time, attention and resources as among the greatest obstacles to improving cost management at their companies, followed by organizational resistance (35%).

“Midsize companies’ overall business strategies in 2013, are progressively reflecting a value-oriented mind-set, despite a continued shortage of available credit and already strict budget controls,” noted Brown.

“Financial leaders are tasked with extracting value at every point through improved performance internally and in their supply chain,” he explained. “These midsize companies plan to maintain – and in many cases ramp up – spending over the next year as they apply greater scrutiny on the value level achieved in all transactions and clearer visibility into expenses.”

Something truckers should keep in mind, too, as the summer freight season approaches.